Posts Tagged 'disability insurance'

This is a post I’ve been thinking about for a couple weeks. It started with a personal experience. My family purchased a life insurance policy on my grandfather about 15 years ago. When we bought it (I say “we” although I was only 19 and had nothing to do with the purchase), the plan was for the policy to be in place through my grandfather’s 100th birthday (he was 71 at the time). We have been paying the premiums, and have even increased the premiums in recent years.

A couple months ago, I decided to examine the policy (it was the first I even knew about it). I realized that, as the policy was written, and with the happenings in the economy, the policy was now only projected to last through his 91st birthday. My grandfather is now nearing 86 and is healthy as a horse. Now we are left with decisions as to how to address this issue. Do we wait until the policy gets close to expiration before deciding to extend it? Do we just let it expire, and know all the money we put in is lost? We are in the unfortunate situation of benefitting if he dies sooner than expected.

The reason this brings me to this post is that, if we had re-examined the policy 10, or even 5, years ago, we would be in a much better place to alter it to last longer. We should have taken a look every year, or at least every 3 years, to make sure the goal of the policy matched our current situation, needs, and abilities.

This is the same for everyone. I have spoken to so many people who purchased some insurance years ago, and have not talked to the person who sold it to them since. Their situations have changed, and their coverage and savings vehicles no longer match their objectives.

I have also spoken with several people who think they have plenty of coverage through work. I am always happy to evaluate their current benefits, and see if they match the objectives and needs for protection, growth, and tax reduction.

Of course, you will tell me that I am going to find some need just to sell something. My response is that YOU are going to find a need, and I can help you solve your problem. Most of the people in my field are really trying to help. We’re acting like any other professional in that we’re evaluating your current situation and future needs, and developing a plan to get you to your goals in the most efficient way possible. Usually our time is free, and you are free to take our advice or leave it. However, please take advantage of our expertise, and help yourself to avoid a bad situation before it’s too late.

I was talking with some folks in my office about why so many clients don’t have Disability Income Insurance. We were going through various contacts, clients, etc. and trying to determine some of the reasons we’ve heard, and some reasons we’ve inferred.

First, I have to tell you what Disability Insurance does. If you have DI, and you are too injured or sick to work for a long period of time, DI pays you the benefit amount.

Your ability to earn income is probably your greatest asset, and yet most people don’t cover it. If you’re in your 20’s or 30’s, you are 8 times more likely to become disabled during your working career, than to die. For the last 10 years, 93% of home foreclosures in this country were due to a long-term disability leading to an inability to work.

There are obviously different forms of DI – Short term, Long term, Retirement plan, Catastrophic, Partial, etc. These are all additions or riders to be discussed with your financial advisor based on your situation. Now, here are some of the reasons we came up with…where do you fit in?

1. I have some Disability Insurance through work. This is great. Fantastic that your employer is paying for this benefit. There are some things you need to find out about this plan.

What does it cover? Most employer sponsored plans cover only 60% of your salary. They do not cover bonuses or commissions.

What is the waiting or elimination period? This is the time you must be disabled before you start receiving benefits.

How long will it pay benefits? Most plans are 12-36 months.

Once you have those questions answered, you have to look at some of the numbers. If you have a plan from your employer and you need the benefit, the benefit will be taxed as ordinary income. Can you live on 70% of 60% of your salary? If so, how long can you live on that amount? What if you’re disabled for 10 years or even longer?

Another thing to remember about most employer sponsored DI plans is that, if you can do any type of work, even if it means a huge drop in pay, you no longer receive the benefit. If you’re making $150,000 per year, and due to an injury, you can now only perform a job in which you make $60,000 a year, the benefit stops.

You certainly should not forego the plan graciously purchased by your employee, but you should definitely augment it with one of your own. You can tailor a plan to your needs.

2. Disability Plans are so expensive. This is a common one. My question is…expensive compared to what? If you’re 35 years old and you make $100,000 per year, and you have 30 more good working years, and we assume you’re never going to get a raise, you’ll make $3 million. Now, if you are too sick or injured to work today and can never go back to work, was your DI premium too expensive?

OK…that might be a harsh example. What if you’re sick for 3 years (83% of DI claims are for illness rather than injury), and you lose out on $300,000? What if you also had a DI policy that, in addition to paying the benefit to you, would make regular payments to your retirement account? If you were only putting in $5000 per year, that is $15,000. However, imagine how much you would have lost had you not had that $15,000 invested for the next 30 years. At 7% interest that is another $115,000. Again, was the DI policy too expensive?

Part of a financial plan is providing yourself with the adequate protection to reach your goals even if unfortunate and unforseen things happen. Your financial plan should not be a hope, it should be a path.

3. I didn’t know anything about it. This reason is completely my fault. I’m not doing a good enough job of informing my contacts and clients about the need for Disability Income Insurance. I know I’m not a pushy person…this blog is about as pushy as I get in terms of talking about the needs for insurance. I need to do a better job of helping my clients with their financial plans, and part of that is educating them as to all the scenarios, and all the vehicles available to protect their assets, as well as grow their wealth.

Everyone I know needs to be aware of the benefits of Disability Income insurance. If you know me, and you don’t have DI, please ask. If you think you might have it through work, talk to me and we’ll figure out if it would be enough. If you don’t know me, please ask your financial advisor about DI. There are so many ways to fit it into your budget, and make sure you and your family are protected.

I had a full week of meetings to talk about my new products and services. I had several appointments, all with friends. I must admit, it was awkward. Not only was I conscious of the fact that I was, in essence, trying to sell insurance, but I was asking friends to divulge some information about their personal finances.

I don’t feel like I pushed the insurance on them at all. I told them why I chose this career, and why I chose the firm I did. I then went into a description of building a financial plan. I think I sufficiently explained why life and disability insurance are the basis, or foundation, for a financial plan.

The logic is that, if you have $500 to invest each month (you certainly don’t need that much to get coverage. Also, do know this amount is NOT meant to be a quote for anyone in particular), you can either put it into an investment account and hope it appreciates, and hope, if you need it, the market doesn’t happen to be down 40% that year. Or you can make sure you have enough life and disability income insurance to cover your home, family, income, debt, funeral costs, etc., should you die or become disabled prematurely. If something bad were to happen, you get more bang for your buck with life and disability income insurance than you do in an investment account. When you start making more money, you can start investing because your family is taken care of in the event of death or disability.

I even explained the difference between whole and term life insurance to some of my friends, and they were grateful for the education.

I definitely felt myself getting a little pushy. However, I know it was not due to my desire for commissions. I’m sure in the past the stigma of the pushy insurance salesman has been deserved because the agents un-ethically tried to sell products that were not best for the clients, but were best for the agent’s wallet. This week, though, I felt my pushiness came from a desire to help. The building of the plan made perfect sense to me, so why wouldn’t it make sense to my friends. Why would they be adamant about wanting to keep finding good value stocks rather than protecting their families?

I got the “give me a few months and then we’ll take a look” responses. What if something were to happen in those few months? I know that seems like a sales ploy to try to get you to buy now. However, it is exactly what these products are designed for…unforeseen circumstances. If you know you need life or disability insurance, and you have the money to buy some (any is better than none at all), you should get it now. It has nothing to do with my commissions…it just makes sense.

We can build the retirement planning, college planning, and investment accounts also, but let’s make sure we have your family, house, and ability to earn income covered first.

Am I wrong here? Am I being too pushy? Please let me know.

Many more appointments scheduled next week. I’ll be back with more updates.

I’ve spent the last couple weeks learning the business of financial advising/financial planning. The best part is that I am certain I made the right career choice. This is definitely the way I would like to help people.

The main thing I’ve learned about so far is insurance – life, disability, long-term care – and how it fits into a financial plan. I’m shocked at how easy it can be to protect your family, home, income, etc. from catastrophic circumstances, and how relatively inexpensive it can be. If I’m a professional making $125,000 per year, why wouldn’t I want to spend a little every month to know that, if I were no longer able to work for some extended period of time, I would still receive an income. However, most people look to put this money into an investment account first even though it will take decades to have enough in investments to provide the same protection as they would have from day one.

It was also a little sad to hear about long term care insurance, and to think of my grandparents. My grandmother is now in a wheelchair, and can no longer bathe her self, get around, get dressed. My grandfather has a nurse come to their house every day from the time she wakes up until she goes to bed. If he had purchased long term care insurance, he would be receiving money every month to pay for the nurse, instead of depleting his savings. I will be purchasing LTC for both my parents so my brother and I will be able to give them the best possible care if the time comes that they need full time assistance.